Al Rajhi Bank's Strong H1 Performance and Strategic Positioning in the Evolving Saudi Banking Sector

In the first half of 2025, Al Rajhi Bank, Saudi Arabia's largest Islamic bank, delivered a standout financial performance, posting a 32.4% year-on-year increase in net profit to SAR 12.05 billion. This result, driven by robust operating income and disciplined cost management, underscores the bank's resilience amid regional economic volatility and tightening credit conditions. As Saudi Arabia's banking sector navigates the dual pressures of Vision 2030-driven structural reforms and global macroeconomic uncertainty, Al Rajhi's strategic agility and operational efficiency position it as a compelling long-term investment.

Operational Resilience in a Shifting Landscape

Al Rajhi's H1 2025 results reflect its ability to adapt to a complex economic environment. According to the Alvarez & Marsal (A&M) KSA Banking Pulse Q1 2025 report, Saudi banks collectively saw a 5.4% quarter-on-quarter (QoQ) surge in lending momentum, driven by a 7.5% rise in corporate loans. Al Rajhi, as a key player, benefited from this trend, with its loan portfolio expanding at a high single-digit rate in FY25. The bank's cost-to-income ratio remained below 24.5%, a testament to its operational efficiency. This is critical in a sector where margin pressures from interest rate normalization are intensifying.

The bank's non-performing loan (NPL) ratio also remained among the lowest in the market, at 0.76% in 2024, with minimal deterioration in H1 2025. This strong asset quality is a structural advantage, particularly as regional geopolitical tensions and inflationary pressures test the creditworthiness of borrowers. Al Rajhi's conservative risk management and diversified client base—spanning retail, corporate, and treasury segments—have historically insulated it from sector-specific shocks.

Profitability Growth and Strategic Levers

Al Rajhi's H1 2025 net profit of SAR 12.05 billion was fueled by a 27.3% increase in operating income, driven by higher net financing and investment income, as well as fees from banking services. The bank's focus on non-interest income—a strategic priority in the post-2023 Basel III framework—has diversified its revenue streams. For example, trade finance and foreign exchange gains contributed meaningfully to its Q2 2025 results, which reached SAR 6.15 billion.

The bank's return on equity (ROE) is projected to exceed 21% in FY25, supported by a 5–15 basis point expansion in its net profit margin. This outperforms the sector average, which has been constrained by rising impairment charges. Al Rajhi's capital management further strengthens its position: its Common Equity Tier 1 (CET1) ratio stood at 16.0% in 2024, with ample room to absorb potential losses while maintaining regulatory compliance.

Strategic Positioning for Vision 2030

Al Rajhi's alignment with Saudi Arabia's Vision 2030 agenda is a key differentiator. The bank has prioritized infrastructure financing and SME lending, sectors central to the country's economic diversification. Its recent redemption of $1.5 billion in Tier 2 sukuk and capital-raising initiatives reflect a proactive approach to funding long-term projects under Vision 2030, such as NEOM and the Red Sea Project.

Moreover, the bank's digital transformation strategy—accelerated by AI-driven customer service and blockchain-based transaction platforms—has enhanced cost efficiency and client retention. This technological edge is critical in a competitive market where fintech disruption and customer expectations are reshaping banking models.

Investment Considerations and Risks

While Al Rajhi's H1 2025 performance is impressive, investors must weigh potential risks. Geopolitical tensions in the Middle East and bureaucratic delays in construction projects could dampen credit demand in the short term. Additionally, rising global interest rates may compress net interest margins, though Al Rajhi's strong deposit base (SAR 802 billion in 2024) and low funding costs provide a buffer.

Analysts remain bullish, with 17 brokers setting a 12-month price target for Al Rajhi Bank's stock (ticker: 1120) averaging SAR 103.51, a potential 9.54% upside from its current price. The stock has traded between SAR 80.10 and SAR 104.00 over the past 52 weeks, reflecting its volatility but also its growth trajectory.

Conclusion: A Buy for the Long Term

Al Rajhi Bank's H1 2025 results highlight its operational resilience, profitability growth, and strategic alignment with Saudi Arabia's economic vision. While macroeconomic headwinds persist, the bank's strong capital position, low NPLs, and innovation-driven approach position it to outperform peers. For investors seeking exposure to the Saudi banking sector, Al Rajhi offers a compelling mix of stability and growth potential. However, patience is key: the bank's full-year results and Q2 earnings report (scheduled for August 4, 2025) will provide further clarity on its ability to sustain this momentum.

In a market where adaptability is paramount, Al Rajhi Bank has proven it can thrive—and its story is far from over.